Our Blog

Australian SMEs Facing Further Cash Flow Crunch

In June 2018, Xero published the newest Xero Small Business Insights (SBI) report. This report gives us a mid-year review for SMEs in Australia. The statistics obtained by Xero (for the period of 1 April 2018 – 30 April 2018) suggest that the Small and Medium Enterprises (SMEs) in Australia will be experiencing tighter cash flow as well as later invoice payments during the mid-year of 2018.

Cash flow tightens

With reference to the month of April 2018, Xero’s aggregated and anonymised data shows that 52.02% of Australia SMEs were cash flow positive in April 2018. That is down 3 percentage points as compared to the previous month.

2 main reasons which caused the decline in the cash flow of Australian Small Businesses was that:

Companies are required to pay superannuation, PAYG and GST for the quarter ending in March. Therefore, business owners are expected to see a large cash outflow in April 2018

As the end of the Australian financial year is approaching, some businesses would spend more to maximise on the tax deductions.

The industries which displayed the healthiest cash flow was:

Accommodation and food services (58% cash-flow positive)

Education and training (55% cash-flow positive)

Construction (52% cash-flow positive)

On the other hand, the industries which had the worst cash flow was:

Agriculture, forestry and fishing (44% cash flow positive)

Mining (45% cash flow positive)

Payments take longer

Based on the mid-year review, the national level of payment times in April have also worsened for SMEs in Australia. In April 2018, SMEs with invoices of a 30 days payment term received payment on an average of 36.3 days. This was an increase from the 34.8 days taken to receive payment in March 2018.

Even though the long waiting time to receive payment is unwelcomed, it is not unusual for payment times to vary by about 1 day from the period of March to April. The increase in payment times during this last quarter of the year could be because tax time is approaching. Thus, due to the decrease in cash flow, businesses take a longer time to pay their customers.

Sectors with the shortest payment times were:

Healthcare and social assistance (17.2 days on a 30-day invoice)

Retail (29.6 days on a 30-day invoice)

The breakdown of payment times per state in Australia was:

ACT – 30.6 days

New South Wales – 37.7 days

Northern Territory – 32.5 days

Queensland – 33.9 days

South Australia – 36.3 days

Tasmania – 32.2 days

Victoria – 37.1 days

Western Australia – 33.7 days

Employment decline

Furthermore, with reference to the mid-year review, there was also a decline in employment by SMEs. There was a 0.9% decrease in the number of Australian SMEs employees from March 2018 to April 2018.

The decline was mainly due to the decrease in casual workers which fell by 1.2%. The number of full-time and part-time employees fell by 0.8% and 0.6% respectively. The decline in the number of employees working for SMEs matches the trend seen in the past 3 years. In accordance with the trend, there should be an increase in hiring for casual, full-time and part-time employees in May and June 2018.

Overseas trading decline

Lastly, there was also a decline in overseas trading for the month of April 2018. As measured by the foreign exchange transactions recorded on the Xero platform, overseas trading fell 6.2% as compared to March 2018.

The main reason for the decrease in overseas trading in April 2018 was due to the huge drop in imports. Import declined by 14%, which is the biggest decrease in a year. The decline in imports outweighed the 1.2% increase in exports and thus, leading to an overall decline in overseas trading.